Backpaper tax rate could lead to rise in cash jobs: IBISWorld

23 February, 2017 by
Danielle Bowling

The backpacker tax bill, passed in late 2016, will reduce the number of working holiday visa holders in Australia over the next five years and will lead to a rise in cash jobs and avoidance schemes, said IBISWorld.

The market research organisation is stating that the tax will negatively affect operators in industries including agriculture and hospitality, which use backpackers to supplement their labour requirements.

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As of 1 January 2017, workers under working holiday visas will be classed as non-residents for tax purposes. Backpackers working in Australia are now subject to a tax of 15 cents for every dollar of income earned up to $37,000, with foreign resident tax rates applying from $37,001. In addition, working holiday visa holders’ superannuation funds are to be taxed at 65 percent from 1 July 2017, up from 38 percent.

In December 2016, a Turnbull government deal with The Greens, led to the announcement that a tax rate of 15 percent will apply to working holiday-makers, down from the proposed 32.5 percent originally put forward in the 2015-16 federal Budget.

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Despite Restaurant & Catering Australia (R&CA) CEO, John Hart, saying at the time that the decision brought welcome certainty to many businesses reliant on travellers to supplement their workforce, IBISWorld senior industry analyst, Nathan Cloutman said business owners still lose out.

“The tax rate has increased, they just negotiated down from the original proposal in the 2015-16 Budget. Overall, backpackers are facing higher tax rates than they were before there was any backpacker tax," he told Hospitality.

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“In January 2013, a price rise for the working holiday visa discouraged many overseas travellers from working in Australia through the working holiday visa," Cloutman added.

Backpacker numbers have increased over the past five years, but the average length of stay has decreased. Many backpackers are now only visiting Australia for a brief period and working in other countries, particularly New Zealand, South Africa and Canada.

“A tax on all income earned on working holiday visas will likely discourage backpackers looking to work during their stay in Australia, causing average backpacker visitor nights to decline over the next five years,” said Cloutman.

“IBISWorld also anticipates avoidance schemes and cash jobs will become more prevalent under the new rules.

“The likely decline of working holiday visa holders is expected to negatively affect several hospitality industries  … With backpackers in Australia anticipated to spend less time in the country as they are not working, many hospitality industries that rely on backpackers for employees or for demand are likely to suffer.

“Hostel operators are expected to face lessened demand, as price conscious backpackers are key users of hostel accommodation. Regional hospitality companies, such as cafes, pubs and restaurants, are also likely to suffer as workers are projected to spend less time in small regional towns as they are not working on farms to earn an additional year in Australia.”